The company pension scheme (betriebliche Altersvorsorge, or bAV) offers a good opportunity to close the pension gap. Here are the answers to the most frequently asked questions about company pensions.
This Article in Brief
- In order to maintain their accustomed standard of living in old age, employees should start thinking about private supplementary provision as early as possible.
- One option is a company pension plan, to which the employer usually adds a certain amount of money.
- In addition, there is also a state subsidy
- Contact us now for a free, no obligation financial analysis
1. What does the company pension plan cover?
The company pension plan is one of the ways to prepare financially for old age. Money is saved during a person's working life so that they can later receive a lifelong pension in addition to their statutory pension. Supplementary insurance, such as provision for surviving dependents or insurance against possible occupational disability, can also be taken out via the bAV.
2. Who can use the company pension scheme?
Deferred compensation, in some countries also referred to as "salary sacrifice" as part of the occupational pension scheme is generally possible for all employees subject to social insurance contributions, regardless of the type and degree of employment. In addition, if the salary or pension agreement is subject to a collective bargaining agreement, it must contain a so-called opening clause for deferred compensation. The public sector and church institutions usually have their own pension schemes. These employers implement the bAV via special supplementary pension funds. Employees should ask their employer what regulations exist in the company, or have us contact them on your behalf.
In the case of deferred compensation, the employee's tax burden is reduced, as are the employer's and employee's social security costs, since the pension amount is deducted directly from the gross salary.
3. So what is a bAV anyway?
In most cases of company pension plans, the employer adds a certain amount of money to the employee's pension plan. As a rule, this is done on a monthly basis. However, it is also possible to pay the amount once a year.
In the case of direct insurance, the employer as policyholder enters into a contract for the benefit of the employee. Insofar as the contributions are financed from the employee's salary (deferred compensation), this is shown on the pay slip. This also applies if the employer pays contributions into the insurance contract in addition to the cash salary. When the employee receives his pay slip, the money saved under the bAV has therefore already been deducted.
4. Is there a legal entitlement to the company pension scheme?
Simple answer: Yes! Employees have a legal right to save with their own funds (deferred compensation) as part of the company pension plan. Employers are obliged to offer deferred compensation via an insurance-based implementation path - this includes direct insurance, pension funds and pension funds. However, employees cannot demand a specific variant or a specific provider.
5. How high is the subsidy amount for the company pension scheme?
The state subsidy in the savings phase is not unlimited. Contributions to a direct insurance policy are tax-free up to 6,816 euros in 2021. This corresponds to eight percent of the contribution assessment ceiling in the west of the German pension insurance. Up to 3,408 euros a year are exempt from social security contributions. This corresponds to four percent of the aforementioned income threshold.
6. What benefits for employees and employers have been written into law?
Since January 1, 2019, it has applied to new agreements, and from January 1, 2022, it will also apply to existing agreements: This means that deferred payments into a direct insurance policy are exempt from social security contributions (up to 4% of the contribution assessment ceiling GRV West), the employer is obliged to make a contribution of up to 15% of the deferred payment if the employer saves social security contributions through the conversion of remuneration.
The law also added a new subsidy for employees with a gross income of no more than EUR 2,575 per month - the so-called low-income subsidy: employers are subsidized by the state if they pay these employees a subsidy for the occupational pension. The prerequisite is that the employer sets up a new company pension plan for this purpose and pays at least 240 euros up to a maximum of 960 euros per year, for example into a direct insurance policy.
A state subsidy of 30% of the above-mentioned employer contributions provides the employer with an incentive here to offer a company pension to the group of people concerned. This is because the employer can use it to finance a company pension for its employees and receive a refund of 30% of the contribution paid. The remaining amount can also be recognized as a business expense for tax purposes.
7. What other advantages does the company pension scheme offer?
The company pension plan allows employees to make state-subsidized provisions for their retirement. In this case, state support means that they are relieved of the burden during the savings phase. Neither taxes nor social security contributions have to be paid on the savings contributions to the occupational pension up to the maximum limits. In contrast, those who save in a different way do so with money that has already been taxed. While savers with the other state-subsidized variants "Riester" and "Rürup" receive the subsidy only afterwards via the application for allowances or tax benefits, with the bAV it is paid directly with the payroll.
8. What are the possible disadvantages?
The pension or capital is subject to deferred taxation and, above a certain pension/capital amount, to full contributions to statutory health and long-term care insurance. Of course, there are no contributions to unemployment and pension insurance. The amount of contributions on the insurance benefit depends on the individual situation of the employee. The statutory pension will be slightly lower if the bAV contributions were paid from deferred compensation from gross wages subject to social insurance contributions.
9. What happens if I change employer?
If the company pension plan is implemented, for example via a direct insurance policy, the contract can be continued with the employer's consent as the new policyholder in the event of a change of employer, or the savings process can be transferred to the provider of the new employer by means of a coverage capital transfer.
This ensures that a savings transaction can be serviced throughout a working life. As far as occupational pension schemes by deferred compensation are concerned, the entitlement is never lost. The contract can either be continued with the new employer or continued privately by the employee.
10. Can I receive benefits from the bAV before the age of 67?
Yes, it is possible to draw a pension early as part of the drawdown phase, at the earliest from the age of 61, if, for example, the old-age pension from the statutory pension insurance is already being paid at that time.
11. Can I have everything paid out at once?
Depending on the type of occupational pension plan, employees can have the entire capital paid out at the start of their pension. Sometimes this is a better alternative for life planning in old age than choosing a pension. Choosing the lump-sum benefit may result in a higher tax burden than with annuitization due to the tax progression.
12. What to do?
Retirement planning is a significant, but also very complex issue. Employees should not make any hasty decisions, but should obtain targeted information and comprehensive advice. In most cases, the company pension plan is worthwhile if the employer pays the contribution alone or at least the legally regulated subsidy.
The occupational pension is merely one way in which employees can save additionally for old age. Information and personal advice from your investment advisor can help.
HOW YOU CAN STILL ACT - in 2021
- Get your finances in order
- Identify your current expected retirement income
- Work out how much you really need in retirement
- Put together a plan to achieve that goal (that's where we come in!)
- Book a retirement plan checkup to make sure you are on track for your target retirement income
- Take a moment to plan your financial strategy by booking a consultation with us today!
Get affluent in Germany!
Get an overview of your financial options - sooner rather than later! We are happy to help you.
